Saturday, September 5, 2009

Pfizer Agrees To Pay Record $2.3 Billion Fine

A couple of days ago, Pfizer entered into a settlement with the federal government whereby the company agreed to pay the largest fine levied against a U.S. company by the federal government. Pfizer agreed to pay a record $2.3 billion and pled guilty to one felony count to settle federal criminal and civil charges in connection with the marketing of the painkiller Bextra, the anti-psychotic drug Geodon, the antibiotic Zyvox, and the epilepsy drug Lyrica . This is the fourth settlement that Pfizer has entered into with the federal government since 2002 over the marketing of its drugs, fines in those previous settlements totaled $513 million. Government attorneys indicated that these previous fines, and Pfizer’s repeated violations, factored into the imposition of such a stiff fine in the current case. Pfizer generated $48.3 billion in revenue last year, so in many ways, this fine represents a small drop in the bucket for Pfizer.

Under federal law, pharmaceutical companies are banned from marketing drugs for other than their approved uses. Promotion and marketing for non-approved purposes is called “off-market” label marketing, and is thus illegal. However, doctors may legally prescribe “off-label” medications to treat illnesses for which the drug was not approved; however, pharmaceutical companies run afoul of the law in their overt marketing of such “off-label” drugs. The criminal complaint against Pfizer charged the company with sending doctors on all-expense paid vacations to resorts, providing free massages, and payments of kickbacks to get the doctors to prescribe Pfizer’s drugs off-label.

In order to resolve the civil charges, Pfizer entered into a five (5) year “corporate integrity agreement” with the Department of Health and Human Services (“HHS”). The corporate integrity agreement gives HHS the ability to monitor Pfizer’s marketing activities.

In terms of deterrent effect, only time will tell whether other companies take heed of Pfizer’s predicament and subsequent punishment. The jury will remain out on the issue of deterrence. In criminal law one of the main underpinnings of harsh punishment is deterrence. Interestingly, in spite of the harsh punishment of one as an example, crime and criminals still flourish and are bountiful. What a novel way to close the budget deficit? Substantially fine corporations that break the law and do bad things!!! Someone in Washington should have thought about this a long time ago.


  1. thanks for this post joe.

    what do you think about the potential for a shareholder lawsuit against the pfizer board of directors for what appears to be a systematic breaking of federal law? would the shareholders be able to recover portions of this fine in a derivative suit against the board of directors and executives?

  2. Professor cummings,

    You have posed wonderful questions. I think litigation may be a possibility at Pfizer. This case harkens back to the Caremark case in Delaware. I think a derivative lawsuit against the board of directors and upper-level executives is possible. This is probably a matter that Pfizer would want to quickly see go away. More importantly, litigants in a potential action may obtain meaningful non-monetary compliance and ethical changes at Pfizer. The bottom line is this: I don't think this story is over.